South Africans earning abroad have been brought back into the tax net by the Taxation Laws Amendment Act of 2020. The effect of this legislative update is that South Africans working overseas can no longer enjoy full exemption on their foreign employment income and if they meet the requirements for tax residency, they will be expected to pay tax on their worldwide earnings back home. If you’re a South African in this position, you’re likely weighing up your options in terms of tax emigration. Do you remain a South African tax resident and pay expat tax on your foreign income, or do you complete tax emigration now and become a non-resident for tax purposes? What happens if you don’t want to tax emigrate right now, what will your situation be with the South African Revenue Service? Let’s take a look at the pros and cons of tax emigration.

How do I know if I am a South African tax resident?

If you are currently working outside of South Africa, you’ll need to ascertain whether SARS is likely to view you as a resident in South Africa for tax purposes.

You are a tax resident in South Africa if either of the following residency tests applies to your situation:

• You are “ordinarily resident” in South Africa; or
• You meet the requirements of the physical presence test, even if you are not ordinarily resident in a specific tax year.

What does ordinarily resident mean?

The concept of “ordinarily resident” refers to the place in which your lifestyle is centred, and the place to where you return regularly if your presence is not continuous.

• It is not a concept that is clearly defined, and each case is evaluated on its merits.
• Because it is a subjective test that assesses your intention to be tax resident or not, if you declare that you are not ordinarily resident in South Africa, all the surrounding circumstances must support your claim.

According to the South African Revenue Service, they will be getting all up in your business to get the dirt on factors that indicate your intention to be (or not to be) a tax resident of South Africa.  Some of these factors include details relating to:

• The type of visa you used to enter the foreign country you’re in
• Official documentation indicating permanent residence in that foreign country
• A certificate of tax residence, or a letter from that foreign revenue authority affirming that you are a tax resident in that country;
• Any business interests or property belonging to you that remains in South Africa;
• Information about your family situation, including whether any family is still in South Africa and the reasons they remained;
• Your leisure interests – such as gym memberships, recreational clubs and societies, and the location of your personal belongings (any goods in storage, etc);
• Any return trips you make to South Africa, including the reason and frequency of your visits.

What is the physical presence test?

This is an objective calendar-based exercise, and to meet the requirements of the physical presence test, you must be physically present in South Africa for at least:

• 91 days in total during the tax year under consideration;
• 91 days in total during each of the five prior tax years; and
• 915 days in total during out of those five prior tax years.

How do you stop being a tax resident in South Africa?

• It’s as simple as failing to meet the tax resident requirements contained in the Income Tax Act.
• You become a tax resident of another country by means of a double tax agreement, which terminates your tax residency in South Africa.
• If you are considered resident by virtue of the physical presence test, you will cease to be a resident once you have remained physically outside of South Africa for at least 330 full days. Once this time has passed, you will be deemed to have ceased to be a resident from the day you physically left South Africa.

What does this mean?

It means if you’ve spent more than 330 calendar days outside of South Africa, you no longer meet the requirements for tax residency. You are deemed to have ceased residency on the day on which you physically left the country.  No big deal, right? Ceasing tax residency is not the end of the road for you with SARS just yet. There’s still a little thing called Capital Gains Tax and the South African tax authority uses it to make the most of their final opportunity to tax you. The day before you ceased being a tax resident, you are deemed to have sold all your worldwide assets to your foreign self, triggering a capital gains tax on those assets.

Are there any other benefits to tax emigration from South Africa?

• Your tax affairs will be simplified, as you will no longer be liable to pay expat tax on your foreign employment income. You will only be taxed in South Africa on locally-sourced income

Read more:

• What is Capital Gains Tax and when do South Africans pay it?
• Expat Tax Matters: Capital Gains Tax explained

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